Nautilus 2008 Annual Report Download - page 54

Table of Contents
We estimate the fair value of our stock options using the Black-Scholes-
Merton option valuation model and determine the fair value of restricted
stock awards based on the closing market price on the day preceding the grant. The assumptions used in calculating the fair value of our stock-
option grants are as follows:
Expected dividend yield
is based on our dividend history and our expectations of future dividend payments.
Risk
-free interest rate is based on the implied yield available on U.S. Treasury zero coupon issues with a remaining term approximating the
expected life of the options.
Expected life
is calculated using the “simplified method”
in accordance with the Securities and Exchange Commission Staff Accounting Bulletin
No. 110.
Expected volatility
is determined based on the daily historical volatility of the Company’s common stock over a period commensurate with the
expected life of the stock option.
We estimate future forfeitures, at the time of grant and in subsequent periods, based on historical turnover rates, previous forfeiture experience
and, if applicable, changes in the business or key personnel that would suggest future forfeitures may differ from historical data. We recognize
compensation expense for only those stock options and stock-based awards that are expected to vest. We reevaluate our estimate of forfeitures
each quarter and, if applicable, recognize a cumulative effect adjustment in the period of the change if the revised estimate of the impact of
forfeitures differs significantly from the previous estimate.
(u) Related Party Transactions – The Company’s largest shareholder, Sherborne Investors LP (“Sherborne”) undertook a successful action to
replace four of the Company’s directors with Sherborne nominees in a December 2007 special meeting of shareholders. In May 2008,
shareholders approved the reimbursement of up to $0.6 million of expenses incurred by Sherborne in connection with the shareholder action.
Payment requires the approval of the disinterested members of the Company’s Board and is not anticipated until some time after the Company
returns to profitability. The obligation to reimburse Sherborne’s expenses is included as a long-term liability in the Company’s consolidated
balance sheet at December 31, 2008.
In February 2009, the disinterested members of the Company’s Board of Directors approved a separate agreement with Sherborne Investors
Management (“Sherborne Investors”) under which the Company is obligated to reimburse Sherborne Investors, $20,000 per month, for the use
of Sherborne’s New York office space and administrative, information technology and communications services to support the Company’
s Chief
Executive Officer.
(v) New Accounting Pronouncements – In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”).
This statement defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 became effective for financial statements issued for fiscal years beginning after November 15, 2007. The
Company’s adoption of SFAS No. 157 did not have a material impact on its consolidated results of operations, financial position, or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”),
which gives entities the option to measure eligible financial assets, and financial liabilities at fair value on an instrument by instrument basis, that
are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is
available when an
50
2008
2007
2006
Dividend yield
0.0
%
2.3
%
2.7
%
Risk
-
free interest rate
3.2
%
4.4
%
4.7
%
Expected life (years)
4.59
4.75
4.75
Expected volatility
52
%
45
%
44
%